OppenheimerFundshttp://blogs.forbes.com/oppenheimerfunds
The Right Way To InvestWed, 30 Apr 2014 20:19:00 +0000en-UShourly1http://wordpress.org/?v=3.9.22014 Outlook Update: Has The NILE Frozen Over?http://www.forbes.com/sites/oppenheimerfunds/2014/04/30/2014-outlook-update-has-the-nile-frozen-over/
http://www.forbes.com/sites/oppenheimerfunds/2014/04/30/2014-outlook-update-has-the-nile-frozen-over/#commentsWed, 30 Apr 2014 20:19:00 +0000http://blogs.forbes.com/oppenheimerfunds/?p=1290As we enter the second quarter of 2014, it seems appropriate to revisit my 2014 Outlook, Swimming Up the NILE. I’ll publish a fuller mid-year analysis this summer, but for now, let’s see how our expectations are panning out.

I called for non-inflationary but lackluster expansion (NILE) in the U.S., early stage recoveries in the Eurozone and Japan, and slower growth in many emerging markets. So far, that forecast appears to be as solid as the great Egyptian river was in 829 C.E., when, according to contemporary observers, it froze.1 Looking ahead, I see little risk of recession in most of the world’s major economies, especially given manufacturing surveys that in aggregate suggest continued expansion. Against this backdrop, and with valuations seemingly reasonable in most areas, I continue to expect most major equity indices to finish the year higher than where they started.

International Growth: A Tale of Two Stimuli

The Eurozone continues to recover from its disastrous debt crisis and spate of recessions. Bond yields in the periphery have made significant recoveries, unemployment appears to have peaked, and most purchasing managers’ indices are in expansionary territory. Indeed, policymakers’ chief focus has now moved onto the risk of deflation. In response to this threat, the European Central Bank appears to be laying the groundwork for some form of monetary stimulus. European quantitative easing is unlikely to take the same shape as it did in the U.S. or elsewhere, however. Given European companies’ dependence on bank loans for financing, one option the central bank may pursue is to purchase securitized packages of such loans, freeing up banks to make more of them to the companies that badly need the financing. Done right, such a program could help to encourage growth and forestall deflation—all without jeopardizing banks’ capital ratios.

China, meanwhile, has embarked on a mini-stimulus program of its own, only of the fiscal variety. In a welcome move, the government is cutting taxes for small and medium-sized businesses, spending more on housing for the poor, and financing railroad expansion into less developed interior regions. Importantly, these measures are aimed not at rekindling the highly leveraged growth of the past, but rather toward fostering greater consumption—the bedrock on which China hopes to build future growth. Although the current package is quite small, I view the fact of the stimulus, as well as its focus on consumption, as positive both for China and for other emerging economies that depend on Chinese demand for their own expansions. And it’s worth remembering that the current $9 trillion Chinese economy growing at a comparatively tame 7% or so contributes more incremental output than was the case not long ago, when China was a $5 trillion economy growing at 10%.

U.S.—Will Animal Spirits Haunt Profit Margins?

The U.S. continues to grow at a modest pace—faster than most of our developed-world counterparts, but more slowly than many of us would like. In any case, modest growth and low inflation have kept the Federal Reserve dovish, and should continue to do so for quite some time. Corporate profits have flourished in this environment, but the game may be changing. As Chart 2 shows, pretax profits have grown far faster since the financial crisis ended than either private payroll growth or capital expenditures. Going forward, it will only become harder for today’s “lean” companies to boost their earnings per share through slashing costs and buying back shares.

Such a paradigm may be typical of the early stages of a cycle, but it can’t last forever. I believe that, to remain competitive and expand sales and earnings, companies will increasingly need to upgrade their aging capital stock and hire personnel. The implications for the economy are certainly positive, but the consequences for investors are less clear. Many companies may see profit margins fall as they invest more in their capital stock and workforce, at least in the short term. (As recoveries in many regions overseas mature, we’re likely to see the same dilemma play out there, too.)

A rising tide may have lifted all boats in recent years, but I believe that as the cycle matures, investors will need to become much more selective. To that end, I invite you to read a new paper I’ve written on the subject, called The Bull Market Isn’t Over. It’s Changing: Three Types of Companies That May Benefit. In it, I share my ideas on which kinds of companies may thrive in an environment of modest global growth and, for many, potentially narrowing profit margins.

2. The MSCI ACWI Index is designed to measure the equity market performance of developed and emerging markets.

3. The JP Morgan Global Manufacturing PMI is a Purchasing Managers’ Index (PMI) that tracks manufacturing activity broadly across developed and emerging markets.

Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Emerging and developing market investments may be especially volatile. Due to the recent global economic crisis that caused financial difficulties for many European Union countries, Eurozone investments may be subject to volatility and liquidity issues.

Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Emerging and developing market investments may be especially volatile. Due to the recent global economic crisis that caused financial difficulties for many European Union countries, Eurozone investments may be subject to volatility and liquidity issues.

Mutual funds are subject to market risk and volatility. Shares may gain or lose value.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on April 10, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.

]]>http://www.forbes.com/sites/oppenheimerfunds/2014/04/30/2014-outlook-update-has-the-nile-frozen-over/feed/0Help Millennials Seize A Timely Advantagehttp://www.forbes.com/sites/oppenheimerfunds/2014/04/30/help-millennials-seize-a-timely-advantage/
http://www.forbes.com/sites/oppenheimerfunds/2014/04/30/help-millennials-seize-a-timely-advantage/#commentsWed, 30 Apr 2014 20:16:00 +0000http://blogs.forbes.com/oppenheimerfunds/?p=1317Recently I participated in an hour-long, live Twitter conversation, moderated by NBC Business News’ personal finance correspondent Sharon Epperson. As I mentioned in an earlier post, many of the participants appeared to fit into that hard-to-reach bunch we call “millennials.” I say hard to reach because, according to a recent survey, only 14% of millennials are likely to seek advice from a financial advisor, compared to 40% of other cohorts.1

In my earlier post, I argued that the very response to our Twitter chat implies that millennials are quite reachable, if you’re willing to speak their language and find them where they socialize (as you’re actually doing right now). Social media has become such an important supplement to traditional ways of touching clients. The best investment advice is useless if no one in listening. But once we’ve gotten someone’s attention, where do we start?

If you read through the questions we received from participants, which you can do at #NBCBizChat2, I think you’ll be impressed with the scope of concerns our Tweeters raised. Participants questioned investment issues such as the value of real estate as an investment, the balance between domestic and foreign companies, and the best ways to use tax-advantaged savings vehicles. What I read between the lines, however, is the basic question, “How do I get started?”

As one of my (millennial) colleagues puts it, saving and investing can seem pretty intimidating when you’re still figuring out how to put food on the table—and beer in the fridge. That challenge, together with headlines about Wall Street being a “rigged game,” may also explain why the study I mentioned above found that millennials had stashed over 50% of what they had managed to save in cash and had invested only 28% in the equities. The resulting problem is obvious. Investors with the greatest ability to take on long-term investment risk likely needed to reach their long-term financial needs, have effectively relegated their funds to a spot under their mattresses.

So how can we initiate a discussion with these skeptical need-to-be investors? From the questions I read, I believe that millennials will respond if one offered to clarify the relative advantages of Roth and traditional retirement accounts. They’ll be glad to hear about a plan aimed at reducing their student loan obligations, and glad to hear suggestions of criteria for deciding whether to buy a home or continue to rent. Perhaps it’s worth taking on some of the anti-Wall Street headlines directly. But the message must end up emphasizing that time can only be on a young person’s side if s/he takes advantage of time to grow, replenish and adhere to a disciplined financial plan.

Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Emerging and developing market investments may be especially volatile. Due to the recent global economic crisis that caused financial difficulties for many European Union countries, Eurozone investments may be subject to volatility and liquidity issues.

Mutual funds are subject to market risk and volatility. Shares may gain or lose value.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on April 30, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.

]]>http://www.forbes.com/sites/oppenheimerfunds/2014/04/30/help-millennials-seize-a-timely-advantage/feed/0Don’t Fight The Fed–Forget Ithttp://www.forbes.com/sites/oppenheimerfunds/2014/04/30/dont-fight-the-fed-forget-it/
http://www.forbes.com/sites/oppenheimerfunds/2014/04/30/dont-fight-the-fed-forget-it/#commentsWed, 30 Apr 2014 17:03:00 +0000http://blogs.forbes.com/oppenheimerfunds/?p=1301Loyal readers of the space (thank you) may recall my comparing the Fed’s third round of quantitative monetary easing—QE3—to that extra cup of coffee some of us grab late in the afternoon. You drink it because you’re tired again and because you remember how much a cup or two in the morning helped you get going. Problem is you’re really not suffering from a caffeine deficiency and that last cup in the afternoon isn’t likely to give you the same alertness kick, and it might have a few undesirable side effects.

Similarly, the Fed’s earlier rounds of aggressive, unprecedented monetary policy interventions prevented, in my opinion, the Great Recession from turning into the second of what we Chicago boys like to call the “Great Contraction” of the 1930s. By now, however, I’m skeptical about the ability of additional QE to do much about the lingering problems of slow growth, weak demand, and high residual unemployment. And I’m glad the Fed continues to wean us from the monetary coffee pot.

I was reminded of my analogy one afternoon when I was brewing that useless cup of 3:30 coffee in the OppenheimerFunds pantry. A colleague who was doing the same thing asked me when I thought the Fed would first start raising interest rates. I gave him the consensus “early 2015” answer, but I really wanted to tell him not to pay so much attention to what the Fed does and to turn his focus instead to what companies, consumers and investors were doing in the real economy.

Of course monetary policy matters—a lot, and a central bank that tightens money too soon or too late risks triggering a recession or an inflationary spiral. And the process of unwinding the extraordinary policy measures the Fed has taken over the past five-plus years will demand extraordinary scrutiny from investors and their advisors. I’ll try to help with understanding how these actions will affect markets.

But what doesn’t make sense is our tendency to pore over Fed pronouncements as if they were sacred texts. As long as inflation doesn’t accelerate and employment continues to improve, the Fed will likely end QE by the fall and begin to raise rates about a year from now. And longer term rates are likely to remain historically low as well. In other words, the Fed is telling us that it doesn’t want to do anything to disrupt the plodding expansionary path the U.S. economy is now following, and we don’t expect longer term rates to rise to damaging levels either (see Krishna Memani’s recent paper, Low Rates for a Long Time). Doing so might mean speeding up or slowing down some part of the normalization process, but they’ll be watching the same business conditions indicators that we watch to figure that out. So let’s watch them.

Don’t ignore the Fed entirely, but our current obsession with exactly what the central bank might or might not do can contribute to the paralysis that has prevented many investors from participating in the financial markets’ recent and potential rewards.

Instead, focus first on the labor market’s ability to draw under- or unemployed workers into the world of regular paychecks and on the speed at which those paychecks get fatter, on the willingness of businesses to invest to stave off competitors for their market share, on the pace at which households borrow to consume and to buy homes. Focus on finding companies that can continue to grow earnings in a slow economy that may demand greater spending on equipment and personnel. (We recently published a paper, The Bull Market Isn’t Over. It’s Changing. that discusses how to find such companies). And, this being an OppenheimerFunds blog, focus on the unfolding economic changes in other major economies, especially China and Europe—where Signor Draghi may be about to serve a cup of strong espresso.

Extraordinary times called for extraordinary measures and that took some getting used to. Now is the time to turn back to the much more complex and more productive enduring economic and business matters that determine investors’ success.

Mutual funds are subject to market risk and volatility. Shares may gain or lose value.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on April 10, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.

]]>http://www.forbes.com/sites/oppenheimerfunds/2014/04/30/dont-fight-the-fed-forget-it/feed/0The Bull Market Isn’t Over. It’s Changing.http://www.forbes.com/sites/oppenheimerfunds/2014/04/22/the-bull-market-isnt-over-its-changing/
http://www.forbes.com/sites/oppenheimerfunds/2014/04/22/the-bull-market-isnt-over-its-changing/#commentsTue, 22 Apr 2014 22:25:00 +0000http://blogs.forbes.com/oppenheimerfunds/?p=1252Since early 2009, when many of the world’s equity markets correctly began to anticipate the end of the Great Recession, investors have enjoyed a remarkably pleasant ride. Of course, there have been rough patches—debt crises in Europe, political impasse in the U.S., persistent deflation in Japan—but markets, especially in the developed world, have generally responded by reaching new highs. I’ve argued previously that these strong returns may well mark the early years of a secular bull market, reminiscent of the period that began in the early 1980s and persisted throughout the next decade.

Nevertheless, we must acknowledge that growth is tepid at best in many parts of the world. Given how far markets have already come, it stands to reason that a rising economic tide will no longer lift all boats to the extent it once did.

Investors would do well to remember that GDP growth is only an average, however. Many firms can and do prosper despite only modest economic tailwinds. But with the easiest gains already having been made, investors must now take a more active approach. Specifically, we must use what we know about the unique characteristics of today’s global macro backdrop to help identify companies poised to thrive in it.

I believe the winners, given the conditions businesses face now, are likely to be:

Organic Revenue Generators—firms that don’t need to expand costs much to grow sales.

Efficiency Vendors—companies that sell efficiency or productivity to other firms.

Innovators—companies whose inventions take costs out of a process, or that have built a “better mousetrap.”

Mutual funds are subject to market risk and volatility. Shares may gain or lose value.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on April 10, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.

]]>http://www.forbes.com/sites/oppenheimerfunds/2014/04/22/the-bull-market-isnt-over-its-changing/feed/1Reaching Millennials: The Medium Is Still The Messagehttp://www.forbes.com/sites/oppenheimerfunds/2014/04/22/reaching-millennials-the-medium-is-still-the-message/
http://www.forbes.com/sites/oppenheimerfunds/2014/04/22/reaching-millennials-the-medium-is-still-the-message/#commentsTue, 22 Apr 2014 20:33:00 +0000http://blogs.forbes.com/oppenheimerfunds/?p=1195I recently had the opportunity to participate in a live Twitter conversation hosted by NBC Business News. To get the conversation started, Personal Finance Correspondent Sharon Epperson introduced a series of questions about retirement planning, financial advisors, and portfolio construction. We received many great questions and comments that you can read by searching the hashtag #NBCBizChat1 on Twitter, but the profile of many who were doing the asking struck me as much as the questions themselves.

When I speak to investor groups around the country, most of the topics I’m asked to address and the questions I hear come from folks who have considerable experience with both life and investing. Not surprisingly when you think about it, the “Twitterverse” revealed a very different demographic. They were young, inexperienced in investing, and worried. Here are a few of the questions (exactly as participants phrased them):

I’m 27 years old—what should I be doing to prepare for retirement?

I just got a 401k. How important is it that I personally choose the stocks to invest in rather than go w/1 of their plans?

What’s your advice to 20-somethings looking to own a house rather than rent?

When is the best time to start investing and should you invest differently for different goals.

What’s the ideal percentage of your yearly salary you should put in savings? Outside of 401k.

Do you think it’s more difficult to be a disciplined saver in cities such as SF and NY where the cost of living is higher?

With the market trending up recently when does investing become too expensive to enter as a new investor?

I’ve spoken to a lot of financial advisors but I don’t know what should be the top qualities to look for? Any insights?

Want to offer account papers to any of these Tweeters? Sure, it may take a few years before the AUM totals contribute much to your business plan; they seem to be struggling to put food on the table—or beer in the refrigerator. They are, however, serious people looking to begin building a financial future, and they’re not necessarily looking in the familiar places. They’re likely to be less impressed by the respected (among us old folks) logo on your business card than by your ability to speak to them in the way they speak to each other.

I noticed that several financial advisors joined our conversation. I can’t speak to their short-term results, but I can suggest that they are on the right track. The medium—social networking—is the message. Just being there conveys an understanding that the world is changing and old ways of communicating and perhaps investing need to be reconsidered.

Mutual funds are subject to market risk and volatility. Shares may gain or lose value.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on April 10, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.

]]>http://www.forbes.com/sites/oppenheimerfunds/2014/04/22/reaching-millennials-the-medium-is-still-the-message/feed/0Evaluating Risk And Reward In The Master Limited Partnership Growth Storyhttp://www.forbes.com/sites/oppenheimerfunds/2014/04/22/evaluating-risk-and-reward-in-the-master-limited-partnership-growth-story/
http://www.forbes.com/sites/oppenheimerfunds/2014/04/22/evaluating-risk-and-reward-in-the-master-limited-partnership-growth-story/#commentsTue, 22 Apr 2014 19:53:00 +0000http://blogs.forbes.com/oppenheimerfunds/?p=1207In February, I discussed the meaningful growth potential that may lie ahead for midstream Master Limited Partnerships (MLPs), an argument bolstered by a December 2013 IHS Global report that puts forward a base case scenario in which almost $900 billion of energy infrastructure capital spending is needed through 2025.1 While we neither agree nor disagree with the exact figures from the IHS study, we believe the report highlights that the energy infrastructure build-out is both substantial and emergent. Importantly much of this infrastructure investment represents growth capital investment, meaning that the assets developed are expected to generate new revenue sources.

This brings up a key point: for midstream MLPs, the energy renaissance is upon us, but the spoils lie ahead, not in the past. Many investors see the returns that MLPs have generated over the past 15 years and fear they have missed the boat. Consider, however, that much of this performance was achieved prior to the energy renaissance when production of crude oil and natural gas was actually declining. While MLPs were able to grow during this era through the acquisition of existing assets, we believe that without the energy renaissance that is now underway, it is likely that MLP performance would have eased in recent years. Instead, U.S. crude oil and natural gas production is growing, and as a result some existing assets are providing growing cash flows and investment opportunities abound.

While we have a strong conviction in the energy infrastructure growth story, there are risks that go along with the potential rewards.

Regulatory

We believe that the Federal Energy Regulatory Commission has proven to be an effective and fair regulator and any meaningful move away from this posture is the single most significant risk to the sector. However, we currently view the likelihood of such a change as very small.

Capital Markets

In order to expend any sizable growth capital, MLPs must raise funds from external sources. Accordingly, the future of energy infrastructure growth is exposed to potential dislocations in the capital markets. In addition, capital markets volatility or a weak stock price can influence capital spending; possibly restricting near-term plans to only the most accretive projects and deferring other profitable projects. In the past these periods have generally been short, causing only minor project deferrals. While we would not expect much to be different in future cycles, the risk of longer duration dislocations is certainly possible.

Supply and Demand Dynamics

We often highlight the toll-road-like nature of midstream MLPs and the fact that this model greatly diminishes commodity risk, especially in the short run. In the long run, however, midstream infrastructure does maintain some commodity price exposure, primarily related to structural changes in commodity supply-and-demand dynamics.

Acts of God and Man

As long-lived, often immovable assets, midstream infrastructure is exposed to the risks of damage and business interruption from negative, naturally occurring events. Additionally, midstream assets could potentially be impacted by manmade events such as acts of protest, terrorism or war. These events, whether natural or otherwise, are lower probability and very difficult or even impossible to predict, but must be considered from a risk perspective.

We use a conservative, private-equity style approach to investing that steers our portfolios toward partnerships that have sustainable businesses that are, most often, highly fee-based in nature. But we caution investors against buying MLP units based solely on the fee-based weighting of cash flows. As with all investing, there is no single-statistic determinant of results; it is a balancing of risks, rewards, operating conditions, and valuation that is both scientific and artistic and benefits from experience.

Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each Fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations which may result in erratic price movement or difficulty in buying or selling. Additional management fees and other expenses are associated with investing in MLP funds. Diversification does not guarantee profit or protect against loss.

The Oppenheimer SteelPath MLP Funds are subject to certain MLP tax risks. An investment in an Oppenheimer SteelPath MLP Fund does not offer the same tax benefits of a direct investment in an MLP. The Funds are organized as Subchapter “C” Corporations and are subject to U.S. federal income tax on taxable income at the corporate tax rate (currently as high as 35%) as well as state and local income taxes. The potential tax benefit of investing in MLPs depends on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation, its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution which could result in a reduction of the fund’s value. MLP funds accrue deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV and as a result a MLP fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.

Past performance does not guarantee future results.

Mutual funds are subject to market risk and volatility. Shares may gain or lose value.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on March 21, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.

]]>http://www.forbes.com/sites/oppenheimerfunds/2014/04/22/evaluating-risk-and-reward-in-the-master-limited-partnership-growth-story/feed/0Not All Emerging Markets Will Emergehttp://www.forbes.com/sites/oppenheimerfunds/2014/04/08/not-all-emerging-markets-will-emerge/
http://www.forbes.com/sites/oppenheimerfunds/2014/04/08/not-all-emerging-markets-will-emerge/#commentsTue, 08 Apr 2014 18:30:00 +0000http://blogs.forbes.com/oppenheimerfunds/?p=1172Narratives can be useful constructs, capturing the essence of a subject. However, their conceptual elegance can lead to misguided generalization. Today, two common constructs have the potential to mislead investors simply because they imply more than they should: First, ‘emerging markets’ is a term past its prime in terms of economic relevance. Second, the term ‘BRIC’ refers to what are arguably the largest of the developing economies but adds almost nothing in terms of analytic utility. 1 These narrative constructs distort the deep heterogeneity across the developing world. Not all emerging markets are ultimately going to ‘emerge.’

The developing world is unbelievably heterogeneous in most respects. Indeed, there is little, outside of relative poverty, tying the 90% of the world’s population living in it together. These are vastly different countries in terms of levels of wealth (i.e., Russia v. Peru), distribution of wealth (South Korea v. South Africa), commodity endowment (Russia v. China), balance of payment, or net savings exposures (Taiwan v. Turkey). So whether it was misplaced enthusiasm about the universality of extraordinary growth in the ‘emerging market’ middle class or more recent universal despair about ‘emerging market’ economic fragilities, we would caution against assuming homogeneity.

The only real generality that can be made straight across the developing world’s countries is that they all have the potential for economic ‘catch up’ with the ‘developed’ economies of North America, Japan and Western Europe. Catch up has two important sub-themes. First, relative wealth is really all about relative productivity. Less developed countries are less productive—hence poorer. This is almost entirely a result of relatively fragile and volatile political and financial institutions. Second, catch up is about potential, not inevitable convergence.

Our approach to heterogeneity

So how should investors approach investing in the developing world? We have our fair share of strong opinions about relative convergence prospects, economic and political reform prospects, and thoughts on cyclical shifts in growth, inflation and currencies across the developing world. We don’t mind standing on soap boxes to pontificate once in a while, ourselves. However, this is not core to what we do as one of the more successful investors in these markets. This is not the essence of our approach to investing in the developing world. Instead, we approach the developing world really the same way we approach investing in the developed world.

We figure out what matters. We identify the big themes most likely to propel durable structural growth and create potential for sustainable increases in earnings and cash flow.

We focus on companies, not countries. For example, we are not of the view that Russia is necessarily the hottest structural growth story on the planet at a macro level, but we have 7.53% of the portfolio invested in three extraordinary companies which are amongst our five largest positions. These stocks have been massive contributors to fund performance over the past three years, against a rather uninspiring performance for the broader Russian bourse.

We focus only on companies with ‘massive advantage.’ These are a relatively small subset of emerging market companies. They all possess the following rare economic characteristics: unique and durable advantage, long-tailed growth opportunity and high returns on capital.

We focus on companies with real options. Great companies often embed real options. These options are the potential to develop entirely new markets or products that result from dominant market positions or innovation.

1 BRIC is a grouping acronym that refers to the countries of Brazil, Russia, India and China.

Foreign investments may be volatile and involve additional expenses and special risks including currency fluctuations, foreign taxes and political and economic uncertainties. Emerging and developing market investments may be especially volatile. Diversification does not guarantee profit or protect against loss.

Mutual funds are subject to market risk and volatility. Shares may gain or lose value.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on March 21, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.

]]>http://www.forbes.com/sites/oppenheimerfunds/2014/04/08/not-all-emerging-markets-will-emerge/feed/0Interest Rates: Low For Longhttp://www.forbes.com/sites/oppenheimerfunds/2014/03/27/interest-rates-low-for-long/
http://www.forbes.com/sites/oppenheimerfunds/2014/03/27/interest-rates-low-for-long/#commentsThu, 27 Mar 2014 15:03:00 +0000http://blogs.forbes.com/oppenheimerfunds/?p=1092Conventional wisdom in the investing world expects interest rates to rise over the next two to three years. Several pundits cite history and the slowly improving domestic economy as their evidence. However, that position ignores some very important reasons to believe interest rates could remain low for much longer than anticipated.

Low Rates Are a Global Phenomenon

Over the long term, interest rates are a function of economic growth and inflation. Historically, gross domestic product (GDP) and interest rates tend to track each other very closely. Since 2008, both developed and emerging economies have seen a slowdown relative to their trend growth rates prior to the financial crisis. With the exception of a few places like India or Brazil, global inflation is also quite low. In fact, in some countries, such as Japan and the United States, inflation is actually running below central bank expectations.

Economic growth trends and central bank policies in Europe and Japan both play key roles in the direction of interest rates. In aggregate, the Eurozone is the largest economy in the world, making it relevant to the direction of interest rates. It appears European nations have avoided a break up, but there are still significant issues that need to be addressed. Most importantly, flows continue to move from the weaker countries to the stronger countries. Given this backdrop, it is quite likely that central bank policy for the region will continue to be dictated by its weakest members.

The Japanese have outlined a three-pronged approach—dubbed “the three arrows”—to help address their current economic position. The first of the policies to be implemented was the large-scale asset purchases by the Bank of Japan (BOJ), which has been extremely successful, increasing the BOJ’s balance sheet substantially. The challenge for the BOJ will be to keep inflation from spiraling out of control while keeping the yen from depreciating too quickly.

China is currently grappling with its own structural issues. Most importantly, investment as a percentage of GDP is currently tracking at about 49%.1 This is much too high. For China to have a stable economy over the long term, it will be necessary for this to shrink and consumption as a percentage of GDP to grow. Policymakers in China understand this and are implementing policy actions to slow the economy and allow for consumption to grow over time. Unfortunately, for the rest of the world this means that global growth is likely to slow with China, and that has implications for a slowdown across the emerging world and in the commodity super cycle.

Sources: U.S. Bureau of Economic Analysis, Federal Reserve Bank, ISI Group, as of 6/30/13
Nominal GDP is smoothed over 10 years. Forecasts may not be achieved. Past performance does not guarantee future results.

The Outlook for the U.S.

Our base case scenario right now is that growth in the U.S. will continue to be in the 1.5% – 2% range. This level of growth is below long-term trends, and in the near term we don’t see a major catalyst to break us out of this rut. Additionally, many people were counting on housing to be the driving force behind a strong recovery in the United States. Unfortunately, housing recoveries tend to have a small direct impact on GDP. With mortgage rates in the U.S. rising rather dramatically since the Fed began talk of a QE taper, we’ve already seen a slowdown in refinancing activity, and this will also increase the cost of housing to many potential buyers. The Fed has also stated that it will keep monetary policy accommodative until we reach a 6.5% unemployment level or breach a 2.5% level for inflation.

We don’t expect interest rates to rise anywhere until global GDP does. But we do believe this low interest rate environment has significant investment repercussions and makes some asset classes, including senior loans and master limited partnerships, particularly attractive.

Source of chart data: BLS, Barclays Live, Bloomberg, and Morgan Markets. The Barclays U.S. Aggregate Treasury Index represents public obligations of the U.S. Treasury with a remaining maturity of one year or more. The Barclays U.S. Aggregate Bond Index is an investment-grade domestic bond index. The Credit Suisse Leveraged Loan Index is an unmanaged index that tracks the performance of senior floating rate bank loans. The Barclays High Yield Bond Index represents the U.S. high yield debt market. The Barclays Aggregate Bond Index is an investment-grade domestic bond index. The indices shown are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.

Fixed income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall, and a fund’s share prices can fall. Investments in below-investment-grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and political and economic uncertainties.

Emerging and developing market investments may be especially volatile. Diversification does not guarantee profit or protect against loss.

Senior loans are typically lower rated and may be illiquid investments (which may not have a ready market).

Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each Fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations, which may result in erratic price movement or difficulty in buying or selling. Additional management fees and other expenses are associated with investing in MLP funds. The Oppenheimer SteelPath MLP Funds are subject to certain MLP tax risks. An investment in Oppenheimer SteelPath MLP Fund does not offer the same tax benefits as a direct investment in an MLP. The Funds are organized as subchapter “C” Corporations and are subject to U.S. federal income tax on taxable income at the corporate tax rate (currently as high as 35%) as well as state and local income taxes. The potential tax benefit of investing in MLPs depends on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation, its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution, which could result in a reduction of the fund’s value. MLPs funds accrue deferred income taxes for future tax liabilities associated with a portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV and as a result a MLP fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on March 21, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.

]]>http://www.forbes.com/sites/oppenheimerfunds/2014/03/27/interest-rates-low-for-long/feed/0A Potential Income Solution For When Rates Risehttp://www.forbes.com/sites/oppenheimerfunds/2014/03/27/a-potential-income-solution-for-when-rates-rise/
http://www.forbes.com/sites/oppenheimerfunds/2014/03/27/a-potential-income-solution-for-when-rates-rise/#commentsThu, 27 Mar 2014 14:54:00 +0000http://blogs.forbes.com/oppenheimerfunds/?p=1099Although our view on interest rates is low for long, we understand clients’ concerns regarding rising rates. Irrespective of the direction of interest rates, the best opportunity in the fixed income universe is in credit.

Senior floating rate loans are particularly attractive in today’s market. They offer a hedge to rising rates as their coupon floats with 90-day LIBOR; they are senior in the capital structure and are usually collateralized by assets of the issuer. Finally, they presently pay a coupon that outpaces the current level of inflation. As an asset class, these loans have historically displayed low correlations to U.S. Treasuries, investment-grade government debt, investment-grade corporate bonds and stocks.

Source: Bloomberg, 12/31/13. The Credit Suisse Leveraged Loan Index is an unmanaged index that tracks the performance of senior floating rate bank loans. The Barclays High Yield Bond Index represents the U.S. high yield debt market. The Barclays Aggregate Bond Index is an investment-grade domestic bond index. The indices shown are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.

Fixed income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall, and a fund’s share prices can fall. Investments in below-investment-grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and political and economic uncertainties.

Emerging and developing market investments may be especially volatile. Diversification does not guarantee profit or protect against loss.

Senior loans are typically lower rated and may be illiquid investments (which may not have a ready market).

Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each Fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations, which may result in erratic price movement or difficulty in buying or selling. Additional management fees and other expenses are associated with investing in MLP funds. The Oppenheimer SteelPath MLP Funds are subject to certain MLP tax risks. An investment in Oppenheimer SteelPath MLP Fund does not offer the same tax benefits as a direct investment in an MLP. The Funds are organized as subchapter “C” Corporations and are subject to U.S. federal income tax on taxable income at the corporate tax rate (currently as high as 35%) as well as state and local income taxes. The potential tax benefit of investing in MLPs depends on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation, its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution, which could result in a reduction of the fund’s value. MLPs funds accrue deferred income taxes for future tax liabilities associated with a portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV and as a result a MLP fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on March 21, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.

MLPs enjoy favorable tax treatment, and many appear to have good business prospects since they are tied to the significant increases in production and distribution of domestic oil and natural gas. Plus, over the last decade, there has been no material correlation between changes in interest rates (as represented by the 10-year U.S. Treasury rate) and MLP yields (as represented by the benchmark Alerian MLP Index1).

Real income will be the likely driver of future returns for investors. Although we believe interest rates will stay low for long, it is certainly possible that interest rates could move up more quickly, and ultimately, over the long term, it’s true that rates have nowhere to go but up. Whether rates stay low for long or not, prudence in either scenario calls market participants to consider investment options that seek to provide real income, such as MLPs.

Both asset classes offer features that could potentially insulate investors against the negative effects associated with a rising rate scenario.

Source: Bloomberg, Alerian Capital Management, Barclays Research estimates. As of 12/31/2013. Chart shows Alerian MLP Index Total Return (AMZX) performance. Interest rates are represented by the 10-year U.S. Treasury. An investor cannot invest directly in an index. They are unmanaged and shown for illustrative purposes only. Past performance does not guarantee future results.

1 The Alerian MLP Index (AMZ) is a composite of the 50 most prominent energy Master Limited Partnerships that provides investors with an unbiased, comprehensive benchmark for this emerging asset class. The index is unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any fund. Past performance does not guarantee future results.

Fixed income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall, and a fund’s share prices can fall. Investments in below-investment-grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and political and economic uncertainties.

Emerging and developing market investments may be especially volatile. Diversification does not guarantee profit or protect against loss.

Senior loans are typically lower rated and may be illiquid investments (which may not have a ready market).

Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each Fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations, which may result in erratic price movement or difficulty in buying or selling. Additional management fees and other expenses are associated with investing in MLP funds. The Oppenheimer SteelPath MLP Funds are subject to certain MLP tax risks. An investment in Oppenheimer SteelPath MLP Fund does not offer the same tax benefits as a direct investment in an MLP. The Funds are organized as subchapter “C” Corporations and are subject to U.S. federal income tax on taxable income at the corporate tax rate (currently as high as 35%) as well as state and local income taxes. The potential tax benefit of investing in MLPs depends on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation, its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution, which could result in a reduction of the fund’s value. MLPs funds accrue deferred income taxes for future tax liabilities associated with a portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV and as a result a MLP fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.

These views represent the opinions of OppenheimerFunds and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on March 21, 2014 and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com, call your advisor or 1.800.225.5677 (CALL-OPP) for a prospectus with this and other fund information. Read it carefully before investing.